Aug 4, 2023

14 – New Tactic Succeeds in CA Health System Merger | Fitch | CVS | Ozempic

Featuring: Vic Gatto & Marcus Whitney

Episode Notes

CA Nonprofit Hospitals are turning to bankruptcy for leverage against the State. Markets are pointing down after Fitch Ratings downgraded the United States’ AAA long-term credit rating. While CVS Health is cutting approx. 5,000 jobs to save on costs amid its ongoing push into healthcare delivery.

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Episode Transcript

Marcus: [00:00:00] All right. I think, I think we already talked about it. This is not going to be a super long show. We’ve got just a couple of stories we’re going to run through this week, right?

Vic: Yeah, that’s right. But I think, you know, there are a lot of interesting dynamics going on. Just, I’m not sure how they all fit together, but we should talk through them and just see.

Part of the fun of it is just kind of exploring where it goes.

Marcus: Yeah. These are, these are four stories that I think tap into different stories over the last, you know, 12 or 13 shows we’ve, we’ve touched on not a lot of, uh, I don’t know. I mean, there were, there were a couple of venture backing events, but I, I looked through them.

I didn’t see anything that felt like. All that significant. VC is quiet. VC it’s, it’s a quiet time in our industry. Um, so anyway, let’s, let’s go ahead and dig in.

All right. The first story, uh, I like this [00:01:00] story cause I think it’s, it’s, uh, It’s a clever story. This is about the California nonprofit hospitals turning to bankruptcy, um, for leverage against the state. So a little bit of a continuation on where we left the last show talking about health systems and sort of the challenges they have in getting mergers done and particularly when a G’s, uh, of, of the state are, are participating in blocking those mergers from happening.

Vic: Yeah, that’s right. I mean, I think the reason. I want to keep following this is that there’s a lot of nonprofits that have significant debt and their operations have deteriorated and they’re going to have to figure out something and that’s going to involve. Maybe closing some facilities, changing things around, selling, merging, combining.

Some AGs are stopping, in certain states, I think it’s about 10 or so states in this article, have been stopping transactions from going forward, I think [00:02:00] with the intent of protecting the population. They want to keep all the healthcare services being delivered. And as we talked about last week, that, Is laudable, but, but if you can’t fund the operations, it’s sort of a rock and a hard place.

And then this came up this week, uh, out of California where a health system, the Beverly hospital, which is outside, uh, LA, they’ve been trying to sell the hospital for 10, I think it’s about 10 years, nine or 10 years. And it’s been blocked several times with requirements. Like you can never shut down any of the operations.

And so for an acquirer to, to walk into a fairly troubled health system and then agree that they’ll never change anything is kind of a hard hill to climb.

Marcus: Yeah, yeah, yeah. So, so, um, it was a group out of North Carolina, [00:03:00] American Healthcare Systems Foundation. Uh, that, uh, there’s been trying to purchase, uh, the Beverly hospital.

And after they filed for bankruptcy, they were able to get the AG’s office to put together the, the acquisition. So,

Vic: yeah, I think the fact that it was in bankruptcy somehow changes the requirement for the attorney general office to negotiate in a more constructive way, or, or at least get to the table and get a deal done.

Marcus: Yeah. I mean, it’s, it’s kind of like. You know, a game of chicken, right? With, with these hospitals and with these AGs where they’re saying, we need to merge, otherwise we’re going to go out of business. And the AG is saying, I’m not sure I believe that. And you need to just keep providing care. And in this case, they went ahead and filed for bankruptcy and that, that called the bluff.

I mean, that said, okay. Do you want care here? Cause we’re in bankruptcy now, right? [00:04:00] You know, you’re going to, you’re going to have to get somebody to come in and take this thing over. So this, this continues to just be a really interesting thing for us to track because it’s easy to talk about the common spirits, the.

You know, the Ascensions, the HCA is these super massive, you know, multi region, uh, health systems. I don’t think that that’s the majority of hospitals around the country.

Vic: No. And they’re, I mean, they have issues, but they’re well run.

Marcus: That’s right. That’s right. Yeah. And, and they’re, they’re almost like too big to fail.

I mean, someone is going to come in. And bring in some capital, private equity, or, you know, big government bailouts. Something will end up happening in those cases. Uh, it won’t be pretty, but it will happen. But in these little onesie Tuesdays, this is a, you know, a 202 bed, uh, hospital, as you said, right outside of LA.

Um, you know, ain’t nobody coming to their rescue, right? So.

Vic: Well, and I think there’s a question in my [00:05:00] mind of, do we need as many hundred bed hospitals. As we have, I’m not sure that I know, I certainly don’t know NLA. If this hospital is needed, but I think that it’s, um, we need to have some mechanism where we can get transactions and get companies reorganized.

Marcus: Yeah. And I think the reality is that we, you know, for those of us on the inside of healthcare innovation, um, You know, we’re, we’re thinking of and aware of all the different models that, that have been emerging, but you know, what’s the truth about hospital at home. It’s still so early. It’s still being piloted.

You know, I mean, it’s, it’s now in the hands of large organizations like a pharmacist or. You know, the medically home, you know, group there, they’re partnered with big groups like Cardinal health because they can handle a lot of the logistics and the delivery of things. But then at the day, like if you actually look at how many patients are on that platform, it’s not [00:06:00] real.

It’s not even really yet. So, you know, we can talk about, do we need that many hospitals? But you got to have a bridge to something new. You got to have something new that’s proven to work. And until then, even from the, from the case of like, what do patients know to do? Right. I mean, they know to go to the emergency room.

They know to go to the hospital. That’s what they know when it comes to. You know, acute, you know, emergency based situations, um, and, and even, even chronic situations. I mean, the hospitals, what they understand.

Vic: Yeah. I mean, I’ve been thinking about this a lot. I don’t have an answer, but the fact that for profit health systems are not in this, are not interested in this property and the nonprofits can’t, can’t continue operations.

They can’t find a way to keep doing it. We need to find some way to treat the patients and make sure that there’s enough coverage, but we don’t need too [00:07:00] much, like, we don’t need unlimited non profit health systems, but I don’t know if the AG is qualified to make that determination, and yet there’s not really a structure to To say, but we have a free market ish health system, but it’s not, uh, totally, uh, for profit market.

And we don’t have a, we don’t have a government run system like they have in Europe. So we’re kind of in the middle. And I think this, this is a good example of where the market was not functioning and they utilize the bankruptcy law as sort of a tool to get something done. And we were talking about, uh, uh, Minnesota.

Deal that got squashed last week. I think we’re going to see this battle kind of happen a lot. There’s a lot of health systems that are in trouble. There’s a lot that are going to be fighting with various AGs. If they’re in a state that is concerned about the [00:08:00] population, which should be every state, but, but is.

Unequally balanced, and this seems like a tool that’s going to be used more and more often because it worked in this case. And so what they had to go to is, um, like commercially reasonable terms. Right. Phrases like that. Right. So they committed to keep the facility open as long as it was commercially feasible or something like that.

Which, you know, is pretty standard language with a lot of outs in

Marcus: it. We’re reading this from the wall street journal. The chapter 11, 11 filing in April gave the hospital operator some leverage against the state’s attorney general, who has the authority to mandate prospective buyers to maintain costly services, such as emergency and charity care, and to accept patients covered by government backed healthcare system, healthcare programs.

So you can kind of get a sense of like, Where, where the fundamental issue is. Right. It’s, it’s, it’s saying, okay, in order for you to have the opportunity to purchase this, you have to agree to X, Y, and Z. You know, [00:09:00] basically you need to be the kind of community partner we expect from you, irregardless of like the viability of doing those things.

Vic: That’s right. You have to keep the, um, ed. Open emergency department open. You have to take California Medicaid. I haven’t looked into it, but I charity care and charity care,

Marcus: right. And you have to do stuff for free.

Vic: And there’s probably a reason that this system is struggling. Likely it’s location or the, the patient referrals that happen into the ED or, you know, probably not a lot of commercial or self pay there.

It’s probably a lot of Medicaid or. Charity. And if you don’t get reimbursed very much, you can’t run the hospital.

Marcus: Yeah. So this is just going to continue. Um, I mean, from a healthcare venture perspective, I, I don’t know about [00:10:00] you in, in the deals you’ve been looking at, you know, in your fund lately, but I mean, For us, it’s, it’s been interesting to, to kind of come basically to the end of our, our first fund and, you know, look at what we’ve been able to invest in.

That actually helps the health system. I think we’ve got one very clear, uh, company. Uh, time study that is totally focused on, you know, efficiency and delivering time studies and, and, um, helping

Vic: understand what are our people doing now and let’s make them more efficient.

Marcus: Yeah. Yeah. So there’s, there’s like a compliance reason for that, but then there’s also like an operational, you know, excellence reason for, for doing it.

But, but we’ve looked at so many companies that are talking about selling to health systems. And I think the more that we learn and we have partners and we have friends at these systems and, you know, we go to things like the AHA, you know, summit every year. And, and just the more that we learn, the more we, we realize it’s the foundation of this market is so soft right now [00:11:00] that it’s, it’s hard to get a good sense for.

Where you can invest in reliably provide value to them, you know, because there’s so many fundamental issues. There’s so many hair on fire issues. The, the, the payer mix issue, the, you know, the, the three 40 B issues. I mean, so many much bigger. Issues that have to do with your interface with both the government as a payer as well as commercial payers You know one of the big stories that’s been you know going on it was it was just uh, you know Talked about is denials, right?

I mean it was a big conversation at HFMA And okay, volume is up, but so we’re denials. Right. And so how, how do we sort of navigate that? And, um, you know, I’m not, I’m not picking a side. I’m just saying like, these are the, these are the, the continual issues that are in place. It’s very hard to go to an organization when they’ve got so many fundamental issues and talk about, you know, I’m going to improve.

Stuff for this segment of your population, or I’m going to help lower your costs here [00:12:00] or, or whatever. I mean, even if it’s really valuable, I just am finding it to be very, very difficult. Furthermore, it’s also very hard when the solution is not very robust and mature, and it’s hard to get it to be robust without getting uptake.

So it feels like it was easier in the past, but as things get more difficult for health systems, it’s, it’s just getting fundamentally harder. To effectively sell innovations in the health systems, at least that that’s, that’s my perception.

Vic: Yeah. I mean, I think that, um, it’s always been true. And I think it continues to be true that kind of the value network or how, how hospitals or, or payers sort of deliver value for their customers is fairly complicated.

There’s lots of parts to it. And so for, uh, For a seed stage company for an early stage startup that’s just getting started. Typically they want to take one kind of point solution and really understand the, the [00:13:00] customer pain points, try to try to make that experience 10, 15, 20 times better so that it’s hard to get people to change their day to day behavior.

I’m not going to bother if it’s just like an incremental, tiny change. Giving like a quantum significant, it really changes people’s behavior. my work life, now I can get adoption. Right. The issue is that in health systems, it’s very complex. There’s lots of different pieces and parts that all work together.

So it’s hard to isolate. We’re going to help this piece be 20 times better because it’s kind of dragged down by all the other pieces. And so in my, so I have a new fund, I’ve made one investment. I’m looking at several more, but I’m looking to do 10. We’re really trying to find where can we isolate one piece of the chain and sort of own that and control that and give great value.

You have to be really clear about what. Are you solving and [00:14:00] understanding many of the things that’s a great idea, but it’s so intertwined with other stuff that I can’t really prove that it’s going to work. And then if the health system doesn’t do their part, my company doesn’t get the benefit. So some things that could be great, they, they just, uh, it’s like too hard.

Yeah,

Marcus: yeah, it’s, it’s, uh, and also like a lot of the, the, the larger systems will say, go test this out with a smaller system or like a single hospital. Well, single hospitals are frightening state. Alive,

Vic: they will say that and that’s not a viable path. Yes. Small systems can’t do anything.

Marcus: It felt like it used to be more viable though.

Right. It felt like smaller systems used to have more bandwidth, more ability to actually, you know, work with you, collaborate with you as an early stage company, but they are, they’re just under so much stress now that that channel is, is it’s hard to break through. It’s hard to break through. Okay. Um, Related to these economic challenges, uh, you found this, uh, [00:15:00] story.

I can’t believe I didn’t see this. Uh, the downgrade of the nation’s credit rating, uh, from Fitch.

Vic: Yeah. So there’s three credit rating agencies that sort of rate all the debt around Fitch is one of the three big agencies. Um, is, is, is Moody’s one of the Moody’s and S and P S and P. Okay. So, um, they downgraded U.

S. government debt from AAA, which is the top that it’s been since the U. S. was founded, to AA which is the next level down. Um, but that really shocked me. It shocked the market. The market was down. I think it’s just worth talking about. Like this is, I think, um, not going to matter in that people are still going to buy government debt.

But it is symbolic and kind of a sign of us headed in the wrong direction. I think it’s a pretty big warning shot, but I also don’t [00:16:00] have a lot of confidence that the politicians are going to heed the warning.

Marcus: Well, so this is a, uh, this is a deal book. Newsletter that’s writing about it and, uh, the subtitle

Vic: part of the times.

I think that’s a segment from the time. Yeah.

Marcus: Yeah. Well deal book is Andrew Ross Sorkin’s thing inside the times. Uh, so the subtitle here highlights that the downgrade admonished Washington for persistent political fighting over federal spending, but the move drew sharp criticism. So, I mean, I, I think that that is.

That’s something to just spend a second talking about, which is the culture war, right? Yeah, it is getting to a point. It is concerning people. Right. And I, and I think what’s, what’s, what’s interesting about it is, and I

Vic: intentionally, so I read the times in the wall street journal every day so that I can [00:17:00] understand the two sides of America.

Yeah. And I intentionally went to the Times to get the story for, for the podcast. I mean, both papers covered it, of course, because I think the Times is more friendly to Biden. We should talk about the culture war. And I think even the Times was covering this because it’s a big, you know, it’s a big Move.

Marcus: Yeah. And, and I mean, it’s a big move, but let’s, let’s just take it on the face and let’s say Fitch’s downgrade was in fact about the political fighting over federal spending, right? Like it was, it was, it was highlighting that as a risk.

Vic: And just to be clear, Fitch warned that it would downgrade the U S when the debt ceiling fight was going on, that warning came out.

And I think that was a catalyst that helped us actually get. It done before the deadline. And so there, there’ve been in this kind of a, [00:18:00] I don’t know, activists, credit rating agency sort of role, which whether that’s a good role for them or not, they’re, they’re sort of the one of the three that’s been doing that.

Marcus: Well, I mean, I think that they are representing at least. Some segment of the business world that feels that the culture war is not productive for a stable business environment for a stable economy. When I was at the Axios BFD event in San Francisco, TPG’s CEO was there and he was asked about, he was asked about the debt ceiling and he said he thought it would get done, but more so than any other year.

He was concerned about it getting done. Right. And I, and I think that’s probably represented in this downgrade, right? Which is to say, okay, like you got it done. We knew you were going to get it done, but you’re scaring [00:19:00] everybody. You know, you’re scaring everybody into thinking you might not get it done, you know, and we know that there is a political theater.

We know that there’s a negotiation model and, and. That’s all sort of understood the, um, the vitriol that’s happening around this feels, feels very, very much like the fabric is fraying. And I think that this is a. Good. I think it’s good because we need more organizations, institutions to acknowledge that this is happening and to say, listen, yes, the economy, you know, GDP growth last quarter, pretty good, given everything that’s going on in the world, you know, is the U S uh, you know, really in any serious threat of being unseated as a reserve currency, not in the near future.

I mean, everyone understands that we understand that this is a game of relativity. Right. And, and if you look around the world. Uh, [00:20:00] you know, I think, I think the UK bank just had to bump up the interest rate again, and they have a much harder time dealing with inflation than we do. Um, you know, Europe’s got all sorts of problems.

We’re the least bad,

Vic: we’re the least bad place. That’s right. Good, but we’re the least bad. Yeah,

Marcus: and certainly in the Western world right now. I mean, the Western world’s kind of, Really, really weak right now. Um, so, so no, I mean, I don’t believe that the U S is in any risk of not being the world’s reserve currency in the, in the near future, right?

So let’s, let’s just go ahead and say that, uh, you know, relative to all of the other options that we have in the world, however, you know, in a battle against itself, right, you know, in a cohort against its former self, it’s not stacking up very well. Right. Against itself. Right. From 10 years ago, 20 years ago.

Right. It’s, it’s, yeah, I mean, I, I think, I mean,

Vic: it’s sort of Fitch’s job to rate the U. S. debt on behalf of the debt holders. And [00:21:00] I think what they’re saying is, whichever side you happen to sit on, the two sides shooting at each other is not good for the debt holders. what’s needed is the politicians to be adults and actually create a workable plan that no one is that happy with, but that everyone can live with.

I think this is a warning shot that for our 30 year debt, I mean, it’s not out of the question that, that, that there’s worries out there.

Marcus: Yeah.

Vic: And what I mean, what I mean, I don’t mean that we couldn’t do it. Build our economy and create taxes and pay debt. What I mean is that the Republicans and the Democrats, both sides, it’s hard to be a hundred percent sure that they will be adults, that either side could get so petty and focused on winning the next political poll, whatever, that they do something that is strategically good to [00:22:00] win that next political poll.

victory that doesn’t really matter, but really bad long term for the safety of the overall economy and the debt. And I think that was the message. And that’s what I took from it. And that’s a pretty sobering message. And I can’t say I disagree with it. I mean, it’s, it’s probably right.

Marcus: Yeah, and and there’s there’s there’s two things that are relevant to health further besides the fact that you know We’re talking about the United States live

Vic: in America, right?

Yeah,

Marcus: one sort of obvious is the percentage of GDP that health care represents and specifically the percentage of the deficit that Medicare represents and that that number is growing with no sort of Real end in sight other than if you really project out past the baby boomers You being alive. You know, then, then you have sort of a decline as you head into Gen X.

We’re just a smaller generation, but that’s a ways out.

Vic: Yeah. And, uh, and no one is even on either [00:23:00] side, willing to have a discussion about the entitlement. So Medicare, Medicaid, social security, but no one will discuss it. And so we know this is out there and going to be really expensive and huge percentage of our economy is going to be used in that or in servicing the debt of what we’ve already paid for and no person will.

Speak the words. And so that’s

Marcus: concerning. I, what I think is so disheartening is that it is such a massive opportunity for innovation to play a role, right? You’ve, you’ve got this, you’ve got this chart that is only going in one direction. Right. And. You’ve got this, this capital market that is chomping at the bit to find a way to extract value out of healthcare and lowering [00:24:00] that Medicare cost.

I mean, there’s, there’s so much money to be made there. There is so much money to be made. If we could figure out how to actually turn that around. And, um, you know, we’ve got this ARPA H, uh, initiative that’s, that’s part of this administration and it’s, You know, look, I, I, I applaud, uh, the government pulling out, you know, several billions of dollars, which in the context of a multi trillion dollar, it’s not a lot, it’s not a lot of money and, and really saying in a very short period of time, we’re going to allocate that to, to, you know, um, innovators, innovative companies that are going to really go after some of these big hairy healthcare problems.

But man, it feels like there’s more that we could be doing there. It seems like we could, we could look at the direction, look at what this is going to cost in the future, grab some of that [00:25:00] and really, really work with the private market and really work with the commercial payers to, to try to tackle this thing in a serious way.

I mean, I think about the way that we’re going about it right now. And it’s so hard to get anything done in, in that space and just in the context of how much, how much Medicare contributes to the deficit. I mean, there, there, there is a national imperative for us to try to turn that around. And so to your point about like, we’re not even willing to have a conversation.

I mean, It seems like we should be willing to have a conversation at least about investing in innovation, which has clearly been how America has led the world’s economy. Like we are the best innovators. Couldn’t we leverage that proven track record of capital into innovators to, you know, really lower the cost of just about [00:26:00] everything to lower the cost of Medicare.

I mean, it seems like it’s something we ought to be able to get done, um, with the, with the right kind of focus.

Vic: Yes, we, we know people to call, and there’s a lot of people with really creative ideas. What is not allowed right now is Any kind of long term solution that is not going to fix something we were talking about in the last segment, not going to fix something that is like immediate value this quarter.

It like some of these things are, I mean, like I’m 10 pounds overweight. I should lose a little weight. I should work out more. That’s going to affect. My cost of care in 20 years and I don’t have the proper incentives I have I have incentives to save for retirement. I don’t really have incentives to save for health care It’s not designed the same [00:27:00] way.

It’s just it’s structured for the state of the world in 1965 when most people died by the time they were 70 And we don’t have that anymore. And instead of just saying, as adults would, okay, we know people are going to live till 85, 90, let’s try to rethink this, not for the people that are in Medicare now, but I mean, I’ll be 70 in, um, 2040.

And I don’t know if Medicare will be around or not, and I’ll be 70 years old. I’m still going to be hopefully on this podcast. I’ll still be working, but things I’m doing today, hopefully will make me more healthy than there isn’t. And I was talking to my son yesterday. He was 18. He wants to start saving for his retirement.

He had learned about that in high school. He now understands compounding and he’s telling me I got to start, which is [00:28:00] great. Right. It’s amazing. But healthcare compounds too. And we don’t teach that, we don’t talk about it, we just kind of ignore it. Then we are surprised when people get to 55, 60, 65, and they have a lot of healthcare because they’ve been unhealthy for a long time.

So these problems are, I mean, I went to Oppenheimer last week. It feels like the United States was like really pulling in the best and brightest people. We didn’t understand everything. Lots of stuff was not safe, poorly done and questionable whether it was needed or not, but, but we wanted to lead and find a solution and just put in anyone in the middle of Nowhere to try to figure this out.

We don’t do that stuff anymore. We’re just, we’re just planning for the next election and that’s, that’s not going to work for our kids.

Marcus: No. And, and think about in your own life, I mean, you know, to the listener, [00:29:00] like think of in your own life, would that work? I mean, of course it wouldn’t work. Of course it wouldn’t work.

Like you have to, you know, you have to have a balance of things you do for the short term, things you do for the midterm and things you do for the longterm. And that’s, you know, that, that balance is how. You don’t go crazy today. Um, you know, you’re, you’re also a step ahead of what’s coming up next week, but also in the years to come, you’re, you’re being kind to your future self.

Yes. You know, cause, cause if you’re old enough, like you start to get the sense of future self as a real self, you know, like, I, I am future self of an old Marcus,

Vic: uh, wishes that 23 year old Vic, you know, maybe slept a little more. Right. Exactly. Exactly.

Marcus: So, so I, I think there’s just something around, um, There’s just something around that.

And, and, you know, you, you could, you could say that this, this, uh, downgrade from Fitch, you can isolate it to the, the, the bad behavior in, in DC [00:30:00] politically. But I think there’s also. And this could be a symptom of the bad behavior. Um, in fact, it, it, it could be argued that it absolutely is. Um, but there, there’s also just this, um, this unwillingness to this unwillingness to, uh, actually, actually try to change things for real.

Right. Like, like every, everything is more oriented around maintaining and kicking things down the, down the road than actually going after something for real. And I, and I think that there’s something about the deficit and the, the charts only going sort of one way. And then, you know, when you, when you layer on really, really bad behavior, it should indicate at some point, we don’t know when, but at some point, America [00:31:00] is setting itself up to run into a wall, right?

I mean, that’s, that’s kind of what we’re doing. Um, if, if we believe the things that we tell ourselves in our own lives are the things that we tell our children, right? We don’t know when no one can sort of point to the time on the calendar when it’s, when it’s going to hit, but the compound effect of this behavior, this bad behavior, this kicking things down the road constantly with the only solution being manipulating currency.

Yeah.

Vic: Yeah,

Marcus: right.

Vic: Print more money and manipulate the interest rate to make it be reasonably okay for us. It hurts the rest of the world.

Marcus: Yeah. Like, if you don’t believe that would work for you personally, and you would not, you would certainly not advocate that for your child. At some point, you have to realize, like, in a world of you versus you, or you caring for future you, you’re not doing a very good job, right?

Forget about the competition. Like, just you versus you, you caring for future you, you’re not doing a very good job.

Vic: I want to come back to where [00:32:00] you started because I think you were really close to something that I’ve been trying to Think through which is I don’t think the political parties on either side.

Okay, so republicans and democrats You haven’t heard me to call out a particular party. I don’t think the

Marcus: culture any

Vic: of them actually want to solve the Problems that we face and so we have two parties that are sort of rallying their their uh, Talking points to raise money to get out the vote to sort of drive You them back into office, but I don’t think they’re actually trying to get to a solution.

So I mean, I’ll, I’ll step into this and get a bunch of hate mail, but I think gun control is where is the easiest one. There are multiple things. I, we live in Tennessee, but like, I have a ton of friends that hunt all the time, that love their [00:33:00] guns, and no one’s trying to take their, their hunting away.

Right? But an AR 15 with no background checks, like, The general population of, of either political persuasion, there’s a certain set of things that you could agree on if you all sat in the same room. And yet it would stop getting the vote out. It would stop raising money. It would, for both sides. And so, both sides want the topic to be perpetuated for their own selfish reasons, and so it is.

Then we never get to any solution. Their job is supposed to be to create laws that are reasonably good for the society. And I don’t think they’re doing that job. So Fitch is, this will be, I think we will look back and say this was a sign on the way towards the cliff. Hopefully we will pull back before we go off the cliff.

Marcus: Well, you know, I would say the responses to the [00:34:00] downgrade, which are predictable and understandable, you know, um, treasury secretary, secretary Janet Yellen called the downgrade arbitrary, noting that Fitch has shown us governance deteriorating as far back as 2018, but hadn’t moved until now. Uh, the American economy is fundamentally strong.

She added. So, you know, true, but not, not. The point. Correct. True, but not the point. And also, how many people would say that we are in the same place from, you know, political bad behavior. That’s 2018. It’s not even the same world. Right. It’s literally not even the same world. So, um, So, yeah, um, and then you’ve got Paul Krugman and Larry Summers also calling, you know, the move bizarre saying, I can’t imagine any serious credit analyst is going to give this weight.

So, you know, those responses, which, which I think are more pointing to the fact that we may be bad, but we’re the best that you got, right? To me, that’s really what’s being said here. It doesn’t deal with us. [00:35:00] On our own scale, you know, us versus avoiding the point. Yeah, it’s avoiding the point.

Vic: I think that, uh, there, there is no other triple a rated country backed debt that has debt to GDP over a hundred, right?

So like Singapore, Norway, Finland, that they are rated really strong and they’re like 25%. Um, and now we have a very dynamic, very strong economy. It, it maybe can outrun 120 percent debt to GDP because GDP could in theory grow. But I think the, the point for it to try to make is that we have to actually try.

We have to try,

Marcus: we have to try and we’re, and we’re not trying let’s, uh, let’s. Moves to the next story. Um, this was, this, this was a big headline this week. CVS, uh, cut 5, 000 jobs. Um, I think you, you did the math. [00:36:00] Um, they have 300, 000 employees. So, you know, it’s a little North of 1%, but I mean, when we compare it to, The average percentage haircut that the tech companies were doing in the first quarter, which was 7%, it’s really not much at all.

Um, we have to put this in the context of two major acquisitions that they did in Oak street health and signify health, which I think combined, we’re about 20 billion between the two. Um, and so, you know, it’s weird, right? I mean, All layoffs are sad. I think in the context of all of those things, this feels really just like they’re tightening up the ship and working on integrating these two new, really important, pretty expensive assets that they purchased.

And, um, you know, and it, it also sounded like these jobs were not consumer facing, you know, out in the street, they were like, Back office, corporate jobs. It doesn’t mean it’s any sad. It’s, it’s any less sad. I mean,

Vic: for those 5, 000 people, it’s [00:37:00] sad. I’m worried about the job market. I mean, other people think it is hot.

I think it’s going to be a challenge in the next six months, but, but CVS, I think, has been sort of. pivoting over the last five years, eight years from, you know, your convenience store with a pharmacy to really a healthcare company. And these acquisitions of Oak Street and Signify, we’ve talked about them before.

Those were big investments in new capabilities. And I see this as sort of a continuation of that they’re they’re sort of reorient themselves to be a health care company that’s delivering care and they also have an on site location for urgent care and you can get your meds there and then they have convenient goods you might pick up.

So I think that I think they’re shifting I don’t exactly know where it is but in in management or [00:38:00] in the supply chain or in retail or maybe in their retail buyers. They did, I don’t think it cut a lot of people that were facing customers. They said it wasn’t, and then they came out with earnings the next day.

Beat earnings, but their, their acquisitions are being incorporated. Oh yeah, we have a report on it. So, um, stronger demand that, you know, increase in revenue, they beat earnings, but they were cautious about forward guidance. And they were discussing all the expenses related to these acquisitions being integrated.

So I think it was partially sort of getting the layoff out in front of that to have like all the news at the same time be out.

Marcus: And sorry about all the coughing guys. I’m just, uh, fighting a little cold here, but I had an episode two or three. Yeah, I know it’s, it’s about time for me. So, um, You said something interesting that made me think, uh, you said over the last five to eight years.

And, you know, I can remember, so we, so we’ve been doing this full time [00:39:00] for, um, we’ve been doing this full time for nine plus years now.

Vic: Yeah.

Marcus: Um, and I can remember it since we started working together when CVS stopped selling cigarettes.

Vic: Yeah. So that was the first public thing they did. In recognition of this is not healthy.

This is not

Marcus: right. So that’s been in the last 10 years. So I think I wanted to point that out just to say, we talk a lot about United health group, um, as you know, for whatever you want to think about them, just coming back from the conversation we just had, that’s an organization that is going for it.

Okay. You know what I mean? They’re not trying to do little incremental things here and there. Like they are going for it. They are trying to build the healthcare company of the future for the United States, and. You have to at least applaud the ambition and the, and the, you know, the moves that they have consistently made really in their case for multiple decades.

Um, the reason why I’m [00:40:00] bringing them up is I think when you look at CVS, you know, the market talks about how they constantly disappoint, blah, blah, blah. I, I think they deserve a lot of credit for what they’ve done over the course of 10 years. You know, you go from a, from a, from a, uh, a. A drug store that was really very convenience store.

You were selling cigarettes 10 years ago to let’s look at the moves they’ve done. They’ve rebranded to CVS health. They, they, they bought care mark. They bought the care

Vic: mark was even before that. Yeah. Yeah.

Marcus: Yeah.

Vic: And that’s, if you don’t have, so like Rite Aid is going to die.

Marcus: Yeah, for sure.

Vic: And it’s because they, they don’t have the PBM.

Marcus: Yeah.

Vic: And so CVS has Caremark, I think they changed their name just to CVS now, but, um, and then United has a PBM, Cigna has a PBM, um, I don’t know if Walgreens has, but without a PBM, it’s really hard to be a pharmacy now because they’re just sort of like transfer pricing you out. Right, right. But anyway, yes, they’ve [00:41:00] been pivoting and they’re having to survive in this public market quarter to quarter, but I think they have a longer.

The UN things.

Marcus: Yeah. Well, hold on. Let’s let’s keep stacking the thing. So stop selling cigarettes, change your name to CVS health. As you said, you know, bought Caremark. Um, that feels pre 10 years. Yeah. Yeah. Caremark was, uh, Caremark

Vic: was in 2010. Yeah. Yeah. That was,

Marcus: that was a while back. Um, merged with Aetna.

Yeah. Massive move, right? So that put them in the payvider world, right? Um, bought Oak Street, bought Signify, um, really, Yeah. You know, push for, uh, CVS is, is minute clinic, right? That’s their brand.

Vic: Yeah. They were one of the first to, to be urgent care minute clinic.

Marcus: Yeah. And, and then, and then double down on that with the health hub, uh, idea, which I’ve been to a couple of health hubs now, uh, they, they have one in DC and they’re, you know, they’re, they’re I’m pretty, they’re pretty impressive.

I mean, you know what, they’re clearly you, you see, you see the aspirations of what, what they are trying to do, how they are transforming their [00:42:00] space. Now, having bought Oak street and having signify, I mean, that’s a lot of moves in, in a 10 year, and if we add care markets, let’s just, you know, we’ll call it 15 year, that’s a lot of moves in a 15 year window to, to position yourself, to be a healthcare company of the future.

I, I, to me, it’s, it’s, it’s really, really impressive. To me, it’s impressive.

Vic: Yeah, that’s right, that they have a long term strategy and they have like quarter to quarter execution. It’s hard to pair those both together in a public environment where you’re under so much scrutiny.

Marcus: Yeah, and look, they’re going to suffer from You know, the, the same issues that all managed care organizations do in terms of, you know, they get, they get tailwinds and they get headwinds, you know what I mean?

So they had tailwinds during, during COVID all the payers stacked all this cash during that time, you know, these acquisitions, right? Exactly. They spent 20 billion and bought two, you know, future proofing companies

Vic: now for our health system, friends. [00:43:00] Reimbursements coming back. Yes. Utilizations coming back.

Yes. Patients are more sick. So it’s going to push claims through CVS and United. But that’s, that’s a give and take that that’s, that’s sort of. That’s pendulum swinging. That’s pendulum swinging. That’s right. We

Marcus: don’t have a story, but

Vic: Cigna came out with earnings this week as well. And they were good. They beat.

Um, moderately, they’re the same. Uh, they ha they have a PBM. Uh, they’re seeing costs rise a little bit, but they can withstand it. Mm-Hmm. , they’re, they’re, um, they’re behind. I’d say they’re, they’re trying to more follow the UHG playbook. Mm-Hmm. . But they’re, they’re with, with ever north the base behind with ever Norse.

Yeah, exactly. Yeah. So,

Marcus: well, they, they, they just don’t have the, the, the front door footprint. Right.

Vic: They don’t have the front door, um, compared to CVS and they’re, they’re just 10 years behind Optum.

Marcus: Yeah, yeah, yeah, but they’re, but they’re working on it, but they’re [00:44:00] building the same platform out. Yeah, um, okay.

And then final story, uh, oh yeah, yeah, yeah. Thanks for the reminder. Uh, Vic had to remind me that it’s time to go to a break before we hit our last story. Uh, so we’ll, we’ll take a break and, uh, send it to Doug and then we’ll be right back.

Doug Edwards: Thanks guys for the opportunity to talk about our pre seed fund, Jumpstart Foundry.

My name is Doug Edwards, CEO of Jumpstart Health Investors, the parent company of Jumpstart Foundry. We’re so excited to be able to talk about, uh, early stage venture investing. Certainly the need for us to change the crazy world of healthcare in the United States. We are spending 20 percent of our GDP, north of 4 trillion a year on healthcare with suboptimal outcomes.

Jumpstart Foundry exists to help us find and identify and invest in innovative companies that are going to make a difference in healthcare in our country. Every year, Jumpstart Foundry invests a fund, raises a fund and deploys that across 30, 40, 50 assets every [00:45:00] year, allowing ease of access for our limited partners.

To invest to help us make something better in health care. Some of the benefits of Jumpstart Foundry is there’s no management fees. We deploy all the capital that’s raised every year in the fund. We find the best and brightest typically around single digit percentage of companies that apply for funding from Jumpstart and we invest in the most incredible, robust.

Innovative solutions and founders in the United States. Over the last nine years, Jumpstart Foundry has invested in nearly 200 early stage preceded stage companies in the country through those most innovative solutions that Jumpstart Foundry invest in. We also provide great returns and a great experience for our limited partners.

We partner with AngelList to administer the fund, making that ease of access, not only with low minimums, but the ease of investing in venture much better. We all know that healthcare is broken. Everyone deserves better. Come alongside us with jumpstart foundry, invest in [00:46:00] making the future of healthcare better and make something better in healthcare.

Thank you guys. Now back to the show.

Marcus: All right, we’re back final story. Uh, we’re bringing back the Ozempic cause I don’t know, every week it turns out that this drug can solve another three things. Not one thing. It’s a magic thing. This makes sense that Ozempic would not just help with weight loss, but it would also help with addiction.

You could say that, you know, weight gain could be derived from some addiction to eating. Um, you know, addictions typically are sort of dopamine issues. People just not having good dopamine regulation and needing dopamine all the time. You probably, I think you

Vic: get a dopamine hit when you are hungry and eat food.

So like the, the GLP one. Pathway, it makes sense that it is tied to making decisions and sort of driving behaviors, and if you [00:47:00] change that, you, you feel less hungry, but you also have other, other things you’re addicted to. And this, it’s a video, so we can’t really play it, but it’s a Wall Street Journal study about, um, like, aggregation of lots of medical research that’s early.

So it’s not ready for human consumption.

Marcus: But there’s a bunch of clinical trials going on. Yes. That’s the key. For behavioral

Vic: health and addiction.

Marcus: And I watched the video, and it’s pretty easy to Follow along and make the connection. So if you wanted to see the video, uh, wall street journal, just look up, uh, uh, here’s the headline Ozempics other unexpected side effect is all in your head.

We’ll obviously put the link in the, in the show notes. Um, but yeah, I mean, look, it, it really does make sense that so many of the issues that people struggle with from a behavior perspective are tied into dopamine and dopamine regulation and, you know, [00:48:00] just being sort of addicted to dopamine, dopamine hits.

Vic: Yeah, I mean, I was at a panel thing yesterday, we were talking about, um, behavioral health in virtual care. And then we were saying it, you know, behavioral health, if you’re depressed, if you’re anxious, if you’re dealing with, um, all of these behavioral health things, Sometimes it, it sort of presents in you being really lethargic and not exercising, or you might, much more ice cream or more pot, like, people have different ways that they kind of self medicate.

It’s not always self medicating with, uh, An opioid. That’s right. You might take a drink, you might eat chips, you, um, and it’s not necessarily you’re hungry. You just are like trying to distract yourself. And so behavioral issues, I think, are intertwined with health. And diet and eating and everything. So I think it does.

It fits. It [00:49:00] makes

Marcus: sense. Yeah. And, and, and we’re, we’re learning more now about those behavioral issues, having real, um, brain chemistry drivers. Um, and that. It’s not just us, you know, kind of all animals, you know, they do the test with rats and it’s like, there it is, you know, if you, uh, you know, address this GLP one, uh, you know, issue, you can manage the dopamine, the response to the dopamine, and it just kind of makes you more content with, with things the way they are.

It just sort of, you know, brings down your response to the dopa hit.

Vic: Yeah. So, I mean, if we can get it where it is, uh, Intervention that help helps me lose weight. Say it helps me get, um, onto much better habits and I lose 30, 40, 50 pounds. Now I can. Go on a walk more easily. Now I can eat and then I can titrate off it and like ramp off it.

And I have [00:50:00] much better habits and I don’t have that cycle of, I’m eating a lot. Then I feel kind of lazy and sick and then I’m depressed about that. And I eat more and you just kind of never end. And I drink. And I mean, I

Marcus: mean, the thing about this story is it’s talking about how it makes people not want to drink, right?

Which is obviously. Also connected to obesity, but also connected to some really other very bad things. I mean, I think overeating is one thing, but over drinking is a organ killer, right? So, Yeah. So

Vic: this is, um, it’s a really promising set of treatments. Is that because is You know, the most well known, but there’s going to be a pill form.

There’s going to be a lot of medications that come out in the next couple of years. And I think it’s going to really be impactful to our health system. But it’s, it’s expensive.

Marcus: Yeah. It’s expensive. Um, and that takes us to our final, uh, little story here, which is around employers cutting off access to [00:51:00] weight loss drugs for workers.

So, uh, they’re, they’re talking about we go V, um, which is, you know, in the same sort of family as a Zempik, uh, and how employers are just saying it’s, it’s too much money. I didn’t know how much it actually costs. Um, but it’s, it’s cited here in the wall street journal that this class can cost as much as 1, 350 a month for patient.

Now. I will admit when I saw that amount, I didn’t think it was, that was that expensive. Now I understand when you think about the number of people who suffer from, you know, obesity, uh, that that’s, that’s going to be a big number at scale. Um, but when I think about the, you know, the downstream health benefits and the cost savings of having people who, You know, 20,

Vic: 000 a year,

Marcus: right?

Vic: So if you don’t need a new hip, we’re done. That’s kind of my point. That’s my point. Nevermind the cardiac care, the COPD that, right. Um, and the, I [00:52:00] think the issue is the CFO. I can imagine a CFO saying, listen, we have, CVS has 300, 000 employees. We have 300, 000 employees. X percentage are obese, 25 percent at least more than that.

Probably, but 25 percent so 75, 000 want this. And I gotta pay 1, 300 a month, so that’s 100, 000 a month? No, it’s a, it’s a million dollars a month. Million dollars a month. Million dollars a month. Yeah. How many of these people will still be here when I get the, I get the year, two, three years from now health savings?

Right. Well, my turn is X, and it’s just a math equation. I think they’re saying, I’m not sure the benefits will accrue to me. Okay. But the, but this is, goes back to you’re saying we should sick entrepreneurs and [00:53:00] working on it. It’s, it’s a time, it’s a time and incentive problem. There’s no question that if, if someone is obese and they get on a Zempik and they lose 40 pounds and they’re much healthier.

And then if they can get off it and sort of not pay that the rest of their life, which I think is not that well studied, but, um, hopefully they’re not on this drug forever, they’d, they’d be much healthier, more productive, and they’d be less expensive across a 10 year period of time. So now we’re just talking about like, well, who’s going to get that benefit.

Part of the issue I have with employer based insurance is one, it gets unwritten year by year. And so, there’s really no benefit for anyone to think longer than a year. And two, you can’t take it with you. If I could have my own personal insurance, you know, I might have five jobs in ten years, but I can [00:54:00] take it with me, like life insurance, I’d have much better incentive to, to reduce it.

But we don’t, we don’t have that system. So it’s a misalignment of things. And so for now, employers are declining and I think they’re going to, this is going to be a trend. There’s going to be a lot of drugs that come to market that are very effective and somewhat expensive if you have a one year time horizon, but really effective in a 20 year time horizon.

And we don’t have payment structures for that.

Marcus: Well, this, this is very much, uh, a continuing story because we, we didn’t really go into it, but at the end of that video, you know, they even show off some of the early indicators that that Ozempic could be a Beneficial for, um, holding off Parkinson’s and, um, Alzheimer’s, uh, which, you know, they’re sort of connecting everything back to this GLP one.

Um, and, and how, how this, it has all of these [00:55:00] benefits. So this is going to continue to be a story. I mean, as we continue to find out what this drug actually can do, we’ll eventually figure out what the side effects are, but gosh, it really is tackling so many. Big, big, big, big problems, uh, that we have. And, you know, I, for one, I’m very excited to find something that, that can work, can be affordable and can really start to make a dent in some of these American issues that we have.

Uh, yeah, I think it’s going to be

Vic: incredible. And then GLP one is, is one of the. Pathway signals. Yeah, I was trying to study about it. Uh, last week and it’s a lot of science, but there’s there’s lots of pathways related to diet and the feeling of being hungry and then how you process food and with CRISPR and AI and, um.

All the protein folding stuff, Google’s doing. I think there’s going to be a lot of new treatments that come out, which is [00:56:00] wonderful. Not many of them are going to have a one year impact. They’re going to have a longer term benefit that we need to figure out.

Marcus: Yeah. And we also need to figure out how many of these things can actually get to market.

I mean, I would love to see the. Backstory on how this particular drug got to market. Um, you know, there was a gathering and I’d like to actually go into it on the next episode, but, uh, there’s an article in stat that talks about some of the challenges that the biotech industry is currently facing, just because there’s so many assets that are living in universities across the country right now, they can’t get any capital.

Um, the, the regulatory pathway is pretty difficult to move through. And, um, it just seems like. We’re on the precipice of so many incredible breakthroughs from a science and a technology perspective, um, pharmacological, you know, cell base autologous. Um, it just so many things that we could be doing, but they’re all, they’ve all got some type of barrier [00:57:00] to, to, to advancing to a place where we can actually use them.

Um, and. What is going to be the answer there? Uh, it’s, it’s not clear that in a post, uh, Zerp world, you know, where the interest rate ain’t going back to zero anytime soon, that the mark, the capital markets are going to be accepting of kind of the nonproductive, you know, economic model that biotech provided.

Right. And so I think we have to sort of rehash that entirely.

Vic: Yeah, and I think there’s, I mean, that’s an entire show, but I think ozempic, I believe came out as a diabetes drug and now it is I think we’ve done mostly off label, but it is, it’s being, it’s being prescribed for weight loss. Um, and so I think that’s one pathway that you pick a market, but then it broadens over time.

The other thing that will make this a longer conversation is, I think there’s a lot of longevity [00:58:00] interest in individuals paying for biotech to create things That, that can be an interesting pathway because there’s a lot of, I mean, it’s a K shaped economy, right? There’s a lot of people that are suffering, but there’s also a lot of people that have made a ton of money in the zero interest rate environment that now want to live forever.

And so like getting, getting that all aligned where they do work for their own selfish live forever. Interest, but then it populates down to the, to the whole group of people over time, I think is something to think through.

Marcus: Yeah, I mean, I think the FDA is important there because I think there’s a lot of forget the longevity world.

There’s a lot of athletes today who would like to have access to stem cells, for example, and that’s illegal. You know, you can’t do that today. I mean, you can do PRP, um, but there’s, there’s really strong limitations on what you can do to cellular matter and actually like, you know, put it [00:59:00] into the human body today.

Um, so as long as we’ve got those huge blockers in place, you know, I, I think even, even the longevity folks are, are kind of limited in the impact they can have for the broader society.

Vic: Okay, well, I want to learn more about that so not embryonic stem cells, but just any stem cells You can

Marcus: do

Vic: PRP which is taking your

Marcus: own blood put it in a centrifuge and then you know It kind of gets enriched through that process.

Yeah, you can put it back in And I think there’s like three or four areas where generally speaking, it’s been proven to help with the symptoms that you may experience. Um,

Vic: I mean, I’ve, I’ve seen it for orthopedics, hair growth, stuff like that. Yeah,

Marcus: exactly. But exogenous cells are not allowed. You can’t, you know, there, there was, I think there was like some, some like, uh, umbilical cord stuff that they were, you know, messing around with in the past.

But I think all of that stuff’s outlawed at this point. And I don’t think you can do any of it. I think it’s all illegal. Yeah. That that’s something we, we should, we should look into that [01:00:00] along with the biotech story for, for next week. Yeah. Um, I do want to dig into that. I mean, obviously, uh, that’s, that’s an innovation space.

That’s capital markets. There’s a ton of assets that are out there. It’s a big percentage of what. The tech transfer world is trying to do, you know, Vanderbilt is, is, is, uh, you know, very well positioned to, to do things there, but you’ve got to have the capital in the private markets to actually advance that stuff.

Vic: Yeah. And the tech transfer commercialization is a hard. Yeah. Yeah. It’s hard

Marcus: anyway.

Vic: All

Marcus: right, man. Look, this is a better show than you thought it was going to be. Yeah. Yeah. It’s always, it’s always good when we get live and just talk through things. Yeah. Yeah. Um, and we’re live back in the office next week.

Maybe we’ll try find a guest. Yeah, yeah, let’s um, we’ll talk about I have some ideas. Okay, good. All right. Well, thanks for listening. We’ll see you next week

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